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Riyadh's residential market growth robust in H1 despite slowdown

RIYADH, September 28, 2022

It's boom time for residential market in Saudi capital Riyadh with demand for housing units, particularly in the affordable segment, continuously on the rise despite the recent slowdown, according to KPMG, a leading provider of audit, tax and advisory services.
 
The growth is being mainly driven by a large and growing population, coupled with growing urbanization, declining household size, and government measures, stated KPMG in its 'Riyadh Real Estate Market Overview' report. 
 
In its first ever interactive report, KPMG has highlighted the indicative investment opportunities, market trends, and market performance for the first half of 2022 in the saudi capital, covering four core real estate sectors - residential, retail, office, and hospitality. 
 
On the residential market scenario, KPMG said the government was continuously working on the provision of affordable housing units for Saudi nationals to increase home ownership, which stands at just above 62%, as per the latest published statistics in line with the kingdom's Vision 2030.
 
"The residential market remained resilient during the pandemic which can be attributed to strong demand fundamentals and has witnessed a positive trend in KPIs in the first of 2022," remarked Rani Majzoub, the Head of Real Estate Advisory at KPMG Professional Services. 
 
"The demand for apartments and/or smaller units is soaring at a relatively higher pace mainly due to affordability, an influx of expatriates, and increasing market acceptance for these types of units, particularly among Saudi households," he added.
 
On the office scenario, KPMG pointed out that Riyadh, as the capital and commercial hub, benefits from overall commercial activities in the region. 
 
The primary demand drivers including macro-economic indicators, population, and workforce are expected to remain affirmative, hence a positive outlook for office space demand is anticipated, it stated.
 
Contrary to its historical performance, Riyadh office market has witnessed a healthy upsurge in the rental rates of both Grade A & B segments in the first half of 2022. The market is likely to witness the same positive trend, particularly in the Grade A segment, during the medium term as international companies working in the Saudi Arabia would move their headquarters in the kingdom by 2024 under Regional Headquarters Program (RHQ), hence, additional uptake of office space is foreseen.
 
"The ongoing economic recovery coupled with improving demand drivers of various sectors is likely to have a positive impact on the overall real estate market of the capital city, noted Majzoub.
 
On the retail sector scenario, KPMG said as the largest market in the GCC – and characterized by a strong consumer base with high disposable income – Saudi Arabia has managed to bounce back from the effects of the pandemic. Retail sales are expected to grow at a CAGR of 5% between 2022 and 2025, which is likely to have a positive impact on the intake of retail space in the kingdom. 
 
After witnessing a subdued performance in 2020-21 due to the pandemic, the retail market had shown signs of stability in the first half. However, it will take some time to be back on the growing pace mainly due to increasing competitiveness in the market which is exerting pressure on rental rates, stated the industry expert. 
 
"Mixing up retail with other complementing real estate components such as entertainment, hotel, office or residential could be a commendable idea to generate a certain footfall," remarked Majzoub. 
 
"As Riyadh is positioning itself as a prime tourism destination, an influx of inbound and domestic tourists can be expected. Hence, future developments should focus on the needs of both residents and tourists," he added.
 
On Riyadh's hospitality sector, KPMG said it continues to show signs of improvement owing to a robust increase in demand generated by tourists during post-Covid recovery period. Despite the dwindling performance in 2020-21 due to the closure of borders and tourist attractions, the market is witnessing an upsurge in occupancy rates. 
 
The long-term market outlook is likely to be positive, backed by the government’s initiatives to increase the industry’s contribution to the economy, stated the advisory group in its report.
 
KPMG expects healthy performance of budget hotels (3 and 4 star) in the upcoming years, owing to the current market dynamics. Hence, it is an investment opportunity that can be explored further with gradual recovery and an expected increase in the number of tourists, it added.



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